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Pardolesi, Roberto

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ANTITRUST AND INTELLECTUAL PROPERTY: 
FINALISTIC CONVERGENCE OR LIAISON DANGEREUSES? 
 
Roberto Pardolesi 
 
 
I.- We are constantly told –the last in the row being Jonathan Baker- that antitrust and 
intellectual property pursue the same goal, innovation, which means that two sets of 
rules and the relative policies converge and coalesce. This statement is obviously true, 
whenever there is no tension: as it usually happens when the exclusive right conveys no 
significant market power. But it is no less obvious that intellectual property protection 
and antitrust policy are at odds when the former does matter. Actually, law journals and 
newspapers are filled with cases of antitrust litigations where IP holders are charged 
with abusing their rights and restricting competition.  
 
The use of antitrust to redress abuses perpetrated by means of intellectual property 
unravels a contradiction. IP grants a privilege, an exclusionary right to do something for 
a given period of time, in a given geographic market, with respect to a specific 
intangible object. There can be several ways to reframe the issue, but this is it —only ex 
post exclusivity can reward investments in R&D and work as a stimulus for further 
innovation. Although recent developments in the open source software world advance 
alternative patterns of information production and new forms of incentives, the tragedy 
of the commons does not know many other effective tools to foster innovation. But we 
must discount that IP can turn into an economic monopoly: this risk is built into the 
very idea of awarding the innovator with an exclusionary right. When such a risk 
materializes, the policies underling antitrust and IP protection cannot but clash, since 
antitrust is supposed to fight monopolistic positions and their abuses, whereas IP aims at 
promoting innovation through the right to exclude others from valuable information. As 
we shall see, this locus classicus conceals a trap. But later on that. 
As of now, let me stress the paradox implied in the schizophrenic stance according to 
which the law provides means and procedures to amend the market from abuses of 
market power and to free access, while the law itself gives someone (the IP holder) the 
right to exclude rivals from a market and, eventually, to dominate it. Giving with the 
right hand, while taking back with the left, is an inconsistency that cannot be solved 
using rhetorical arguments.  
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2.- One of the fields where the above aporia becomes most evident is the abuse of 
dominant position of IP holders.  To be sure, there are many cases where IP owners are 
charged with abusing dominant position, where dominance and abuse are missing, at 
least in antitrust terms. Even so, courts and authorities incline to use the essential 
facilities doctrine to curb the market from misbehaviors; but here is a situation where 
the remedy is even worse than the evil it is supposed to cure. 
In Europe, the scene is dominated by a controversial case, the IMS litigation. But if we 
have a closer look, IMS turns out to be a hard case, one of those which make bad law. 
The alleged abuse of the IP owner had its roots in an exclusive right on information that 
did not deserve being granted at all. If a conflict existed, it was due to the unjustified 
expansion of the IP protection. The efforts of IMS in creating the brick structure 1860 
may have been remarkable but did not belong to the sort of investments that are 
required to come up with protectable innovations. 
Then, I suggest dropping IMS and coming to the crucial question: what if the IP in a 
given case refers to a blockbuster, say a vital medicine?  
IP systems reward innovators; nowadays, investments required for a new drug are huge 
and time to market is desperately long. Once a new drug makes its way to the market, 
already millions of dollars or euros are gone. No other incentives uphold the 
investments of companies, but the perspective of an exclusive position in the 
commercialization process. Demanding a firm to share the sandbox, whatever the 
reason, is a straightforward denial of the logic underlying the IP system. That a given 
technology has become an essential facility does not add anything to what we already 
knew. 
 
3. - In a sense, the paradox reaches its peak when the essential facility becomes a 
defense to the counterfeiter. There has been at least one case, decided by an Italian 
court, where one company sought an interim measure against another company that was 
producing system-goods, without licenses on the standard technology incorporated 
[Trib. Genova, 8 maggio 2004, Koniklijke Philips Electronics N V c. Soc. Computer 
Support Italcard]. The rationale behind an official standard comes down to the right to 
get a license on the standard from the IP owner or from the standard setting organization 
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if the latter sets a patent pool to reduce transaction costs and ease the access of firms 
into the market. Provided that, in both situations, whether RAND terms exist or not, a 
consideration must be paid to the IP owner, for the rewarding function operates in either 
context. Actually, one could argue that in the standardization process the rewarding 
function of the IP is even more important, since the whole standardization process is 
long-lasting and expensive. Technologies and patents not included in the standards 
remain useless; costs borne to produce goods and to protect them are sunk and the 
revenues from standardized technologies are supposed to pay back the entire effort in 
R&D carried out by the IP owner. Different industries (pharmaceuticals and information 
technologies), but same incentive structure, same purpose of IP protection. 
The owner of the IP on (a part of) the standard simply deploys his rights when he 
decides to block someone for producing or distributing a product without paying 
royalties. The paradox lies in that the infringer dares to defend himself invoking the 
essential facility doctrine. The outcome is amazing and boils down to an economic non-
sense. The newcomer decides to enter a market that he knows is well populated by IP 
rights. The presence of IP does not mean that there are many small monopolists out 
there; rather, it witnesses the fact that many have been investing in research and 
development, in protection, in commercialization and in all possible steps necessary to 
bring an innovative product on to the market and to defend it against competitors. The 
newcomer is stubborn and proud; without spending one cent in R&D, he is nevertheless 
willing to enter the market. Detection of infringement is a costly activity, not always 
fruitful; chances to be found infringing rights of someone else are comparatively small 
with respect to perspectives to make good money. The newcomer enters and is 
successful; he erodes part of IP owners’ market. 
Suppose now that the IP owner actually discovers the infringement and brings an action 
against the newcomer. Can the defendant invoke the essential facility doctrine as a 
counterclaim? Can he avoid liability for infringement claiming that the IP covers an 
essential facility, that is, a resource which is vital to stay on that market? In economic 
terms, the infringer is a free-rider. Can we jump on a public bus and refuse to pay the 
ticket  because that one is the only means of public transportation on a given route? 
 
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4.- Despite possible inconsistency with the policy inspiring the IP system, there are 
courts, on both sides of Atlantic, willing to apply the essential facility doctrine. All this 
comes at a cost, of course: the cost of a wrong application of antitrust laws.  
Not only has the doctrine a dubious citizenship in the US. More than that, the challenge 
comes implausibly from the very status of monopolist. Being sole in the market is, 
according to the approach of Trinko, the prize for the smart winner of the competitive 
battle; and being sole means that the monopolist will behave the way he is expected to 
do, so that imposing monopoly price can do no wrong (whereas, in Europe, unfair price 
might constitute a violation of antitrust prohibitions). In the same vein, one would 
assume that the innovator, who has been awarded a strong patent, will strive in order to 
impede illicit entry by free-riders. This is the archetypical content of his right, with no 
shadowy overstepping of the limits of the canonical protection. How can it become 
illegal?  
From this theoretical standpoint, the doctrine fares no better in Europe. Take the 
Microsoft saga. Its last chapter, on March 1st, 2007, is a novel SO for failing to comply 
with certain of the obligations under the March 2004 decision. The preliminary view 
expressed by the Commission, in the wake of its previous conclusion that API should be 
exposed and the price for that should be fair (without penalizing incentives), is that 
there is no significant innovation in the Microsoft interoperability protocols, which 
leads to the implication that, for anything not covered by a patent, the price-tag should 
be “gratis” and no serious protection is left for non-innovative trade secrets (already a 
highly debatable proposition). But even for technologies covered by patents, no fee, 
other than a nominal one, should be permitted, since most of those technologies, rather 
than being of any more universal use, relate only to solving problems specific to the  
Windows environment. When they do go any further, it has been stressed that 
comparable technologies are being provided royalty-free.  Question is, then: how does 
this conclusion comport with the tenet that, in exchange for describing and disclosing, 
in an enabling way, an invention, an inventor can use the claims on an issued patent to 
exclude others from such activity as making, using and/or selling in a way that infringes 
the patent's claims? Is the Commission competent to second-guess the European and US 
patent authorities, and to arbitrarily elaborate which parts of the overall scope of the 
protection they have granted deserve respect and which not? Is there any overstepping 
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of the exclusionary right when the holder simply enforces it? 
 
5. - Let us consider another facet of the problem. 
In the realm of IP rights, the essential facilities doctrine may lead to compulsory 
licensing. Now, compulsory licensing can be a regulatory measure (when the law 
imposes licensing for some reason) or an antitrust remedy, depending on two different 
grounds upon which such remedy is awarded, namely: (1) IP owner’s position and (2) 
IP owner’s special liability.  
In the first case, the IP holder is subject to regulation because of its very position; 
health, safety, or public policy reasons recommend he shares his technology. The duty 
stems from his position, not from his behavior whatsoever. Italian laws, as well as 
legislations of many other western countries, provide for such a remedy when an IP 
holder is unable to either exploit or commercialize its proprietary technology so to 
adequately meet the requirements of the market. Another example can be the license a 
generic drug manufacturer can get from patent holders in the pharmaceutical market to 
initiate clinical trials before patent protection expires. This latter case can be helpful as 
it shows how the ultimate purpose of the law is to ease the access to the market of 
generic drug manufacturers as soon as drugs go off patents. At any rate, this type of 
compulsory licensing does not derive from IP owners’ liability. Quite the contrary, it 
implies a lawful situation which is set to expire shortly. The legislator decides ex ante if 
third parties can access the technology, for some reason, in some way. If the patent 
owner maneuvers or otherwise acts as to delay entry into the market by generic drugs 
manufacturers, then (only then) he becomes liable for trying to restrict competition. 
 
Compulsory licensing as an antitrust remedy shows remarkable differences with respect 
to regulatory licensing. It is not positively contemplated in any antitrust rule; it is not an 
automatic effect of a proprietary position, being rather the produce of a judicial or 
administrative order following an inquiry into a possible violation of antitrust laws. In 
other words, there must be a refusal to share (license) a technology; and such refusal 
must amount to abusing dominant position, so that compulsory licensing becomes 
necessary to curb anticompetitive behaviors. Since EU-like systems do not recognize 
the abuse of IP rights as a tort, liability can only derive from abusing a dominant 
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position. Incidentally, even if a specific tort existed, it would be difficult to adopt 
licensing as an ex post, compensatory solution.  
 
6- Inevitable ground to impose compulsory licensing in EU law is Article 82. The 
fundamental idea is that when “exceptional circumstances” occur, the refusal to share a 
facility (in our case, an intangible asset, equated to a structural facility) which is 
essential to compete on a market qualifies as an abuse.  
The doctrine lies on a test, which in Europe has been framed differently from the U.S. 
equivalent. In fact, the US features a four-party test. The doctrine applies when the 
following requisites obtain: (1) control of an essential facility by a monopolist; (2) 
inability to practicably or reasonably duplicate the essential facility; (3) refusal to grant 
access; (4) feasibility of providing the facility. After Trinko, there remains little room 
for the essential facility doctrine; indeed, last year, the district court of New Jersey 
dismissed an antitrust claim based on patent holders’ alleged refusal to license cell 
phone technology adopted by a standard-setting organization on free, reasonable, and 
non-discriminatory terms (Broadcom Corp. v. Qualcomm Inc., D.N.J. Aug. 31, 2006). 
While the decision casts remarkable doubts on the role of SSOs with respect to 
individual behaviors of its participants, it certainly confirms that there is not such a 
thing as an express and solid recognition of a duty to share a technology in U.S. 
antitrust law.  
 
Since Magill, in Europe the doctrine applies whether three conditions hold: (1) a refusal 
to grant access to a facility will likely prevent competition in a secondary/downstream 
market; (2) access must be indispensable to compete; (3) the refusal is not objectively 
justified. The first element of the test (sub 1) makes the difference. In Europe there must 
be a second market, where the competition is being threatened by the use (or abuse) of 
IP rights (a sort of leverage theory that entails what sometimes is called a “new product 
rule”).  
Importantly, European cases decided so far (Magill and IMS) were not concerned with 
proprietary technology; they dealt with intellectual property rights on technologically 
poor facilities, such as a TV guide and a database. Thus, a very general doctrine has 
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been stated, which was not actually confronted with complexities and costs related to 
more costly pieces of technology.  
At any rate, judicial application of the essential facility doctrine to intellectual property 
rights is by no means clear. For instance, in Oscar Bronner the EC Court of Justice 
declared that the refusal to grant access to an intellectual property is the very core of the 
jus excludendi alios which qualifies intellectual property protection. In Magill and IMS, 
antitrust authorities reached different conclusions.  
Major doubts on compulsory licensing as a remedy, imposed through the essential 
facility doctrine, hinge on the lack of a sound standard to determine when exceptional 
circumstances occur under which the clash between IP protection and competition 
should be solved in favor of the latter. Absent a convincing explanation of what 
exceptional circumstances are, the IP holder is subject to a measure which hits his 
proprietary position, more than the effects caused by his refusal.  
If this holds true, then the imposition of compulsory licensing comes closer to a 
regulatory measure than to an antitrust remedy. Liability remains in the rear and what 
really prompts the license is the very position of the IP holder. At the end of the day, we 
deal with what can be defined a quasi-regulatory compulsory licensing: a remedy 
adopted by an antitrust authority exercising improper regulatory powers.  
In so doing, something gets lost: the warning that “licensing is only a remedy, not a 
liability theory” (H.R. PATE, Competition and Intellectual Property Rights in the US.: 
Licensing Freedom and the Limits of Antitrust, June 3, 2005, available at < 
http://www.usdoj.gov/atr/public/speeches/speeches.htm>). Moving a step further, we 
should recognize that this is no IP/antitrust intersection, no ex post solution of a 
conflict, but an outright, almost ex-ante demise of IP protection to regulatory 
evaluations, issued by a subject with no legitimation for such an expropriating task.  
Back to the Microsoft saga. After finding, in its 2004 decision, that Microsoft’s refusal 
to supply interoperability information risked eliminating competition in the work group 
operating system market, the Commission called for the access to the relevant 
information on reasonable and non-discriminatory conditions, and endeavored to 
impose so called Pricing Principles, according to which, inter alia, non-nominal prices 
are permitted only for innovative technology, provided that such prices reflect the 
market valuation of comparable technologies. On this basis, Microsoft’s proposals have 
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been found unreasonable. Whatever label one employs, the substance is strict 
regulation: in a scenario where its underpinnings are missing or, at least, have not been 
scrutinized adequately. 
 
7.- Beyond the different views on whether it is appropriate at all to mandate licensing 
for a firm which prevented entry from a competitor by refusing to share its technology; 
beyond the perplexities expressed by Phil Areeda about the essential facility doctrine,  
stating a principle but saying nothing about the ways this principle should shape the 
dynamic of conflicts and eventually solve them, the ultimate frontier seems to be 
precisely this one: the essential facility doctrine does not belong to the antitrust armory 
and cannot be confidently applied by antitrust courts or authorities. 
  


Antitrust and Intellectual Property: Finalistic Convergence or Liason Dangereuses?

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